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Should you go bargain hunting for retail stocks in 2015?

Retailing is becoming an ever more difficult industry to succeed in. Overseas competition, online competition, and low consumer confidence are creating a massive headache for Australia’s traditional retailers… not all will survive.

Hard Times

The majority of Australia’s listed retailers have warned of difficult times and slowing growth or outright falling sales in the competitive market. Three of the hardest hit have been Pacific Brands Limited (ASX: PBG), Myer Holdings Ltd (ASX: MYR), and Billabong International Limited (ASX: BBG). These companies have one main similarity – they have been left behind as their primary audience has been able to find cheaper alternatives either online or at competing stores.

Winners

The companies that are outperforming are those that are doing something different or making sensible acquisitions. An interesting observation is that companies like the Reject Shop Ltd (ASX: TRS), which has little competition from online retailers due having a lower average customer basket size, could outperform versus companies like Myer that retail a number of relatively expensive brands they don’t control.

Similarly, companies like Kathmandu Holdings Ltd (ASX: KMD), OrotonGroup Limited (ASX: ORL) and even food retailers like Retail Food Group Limited (ASX: RFG) control their supply chain and point of sale so that a loyal customer base can be established and discounting can be limited.

Time to Invest?

The fourth quarter of the calendar year, or Christmas, is typically the strongest and most profitable quarter for most Australian retailers. The outlook statements of Australia’s retailers have consistently mentioned that full-year profit guidance is dependent on the success or otherwise of the Christmas period.

While Christmas spending is predicted to be higher than previous years, I would prefer to search for a surer bet over the long term. Companies with long-term competitive advantages, like some that operate sustainable and dominant online services, can offer much more impressive and reliable growth.

One company that fits the mould has been picked by The Motley Fool's top analysts as their top pick for 2015. Be among the first to get the name and code right now. (Hint: It's a sexy ASX tech company!) Simply click here for your FREE copy... BEFORE the investing crowd gets wind of this!

Motley Fool contributor Andrew Mudie does not own shares in any companies mentioned. You can find Andrew on Twitter @andrewmudie

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